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Study: A $200 Expense Would Put Most Canadians Into Debt

  • Kristina Evans
  • May 12, 2017 10:13AM

More than half of Canadians would be unable to pay their bills if they were suddenly short $200 at the end of the month, a new debt study shows.

The survey, carried out by Ipsos for insolvency consultancy MNP, highlights the fallout from the debt binge Canadians are currently on. The survey found that a staggering 52% of Canadians have no more than a $200 margin to cover their bills each month. 49% of Canadians regret how much debt they’ve taken on as well. One in 10 said they have less than $100 each month left over, but a whopping 31% said they don’t make enough money to cover their expenses.

“With such a small amount of wiggle room, any kind of unanticipated hardship, such as a job loss or even a car repair, could send an already struggling family into financial despair,” said Grant Bazian, president of MNP’s personal insolvency practice and one of the largest practices in Canada. Canadians are well aware of this; the polling suggests debt is causing them a fair bit of stress. Two-thirds of survey takers said they are “less than very confident” about their ability to create an emergency fund.

Household debt has reached an all-time high in Canada, sitting at 167% of disposable income in the fourth quarter of 2016. MNP partially blames the findings on rising house prices, but the data shows that Canadians are taking on more credit card and car loan debt as well.

“Many are in denial, believing they can manage their growing debts. Others don’t know where to go for help or are afraid to address their debts head on,” Lana Gilbertson, from the Vancouver division of MNP, said.

And it only makes sense. According to the survey, roughly 61% said they do not understand how interest rates work. It would explain why so many Canadians end up taking out high-cost loans and increasing their debt instead of finding ways to manage them.

“Many are caught on what I call the ‘minimum payment treadmill,' paying only the interest on their debts, and they are just not getting anywhere,” laments Gilbertson. “If you are using credit to pay for basic expenses, or are pulling equity out of your home to service other debts, it’s time to seek the advice of a professional.”

It may very well be. I’ll freely admit that I have a tenuous grip on understanding finances. I bought the ‘Finance for Dummies’ book when I graduated university, although it wasn’t very helpful. It pretty much told me what I already know: pay off all your debts. But otherwise, there is not a lot of basic foundational material for people to try and understand finances.

Why are so many people essentially living paycheck to paycheck?